Israel's election represents a significant shift of the country's political centre of gravity to the right - whatever the final shape of the coalition government formed in the next few weeks.

With almost all votes counted, rightwing and religious parties control 64 seats in the 120-member Knesset, compared with 56 for centrist, leftwing and Arab parties. The right-left balance was worse in 2003, but events since then arguably give this result greater weight: thus yesterday's gloom among Palestinians and in the Arab world.

In the short term, the right turn is linked to Israel's inconclusive three-week war against Hamas in the Gaza Strip. But its roots go back years and reflect a nadir in Israeli expectations of peace with the Palestinians; concerns about the rise of Hamas, Hezbollah and other Islamist movements; an assertive Iran that seems bent on developing its own nuclear weapons - and profound changes in Israel's demographic makeup.

Nothing symbolises Israel's darkening mood better than the stellar performance of the far-right Yisrael Beiteinu party. It captured third place with 15 Knesset seats (up from 11 in 2006) and its leader, Avigdor Lieberman, is poised to play kingmaker. It wants to overthrow Hamas and insists Israel's 1.5 million Arab citizens declare their loyalty to the Jewish state or leave.

Lieberman, who was born and raised in Moldova and speaks Hebrew with a Russian accent, embodies the anti-Arab prejudice typical of many of the million or so Soviet Jewish immigrants who arrived in Israel after 1990. Another sign of the times is the steep decline of the Labour party. Labour dominated the pre-Israel Zionist movement and led every Israeli government from 1948 until 1977, when Likud, under Menachem Begin, took power.

Labour's 13 MPs, down from 19 in 2006 and 39 in 1988, during the first Palestinian uprising or intifada, represented its worst ever electoral performance. Meretz, a smaller doveish party, saw its Knesset seats cut from five to three.-gover

The shift to the right is not confined to the fringes. Forty years of occupation have created a big constituency opposed to peace on terms that could be remotely acceptable to even "moderate" Palestinians, as Mahmoud Abbas, the Palestinian president, has found to his cost in negotiations with Ehud Olmert, Israel's outgoing prime minister.

With nearly 300,000 Israelis living in the West Bank, some of them religious fundamentalists, and 200,000 in formerly Arab East Jerusalem, agreeing borders for a "viable" Palestinian state is near impossible without outside pressure. The only possible source of such pressure, Barack Obama, will find it more difficult to apply it after this result.

Too many Israelis have concluded the conflict with the Palestinians - and the Muslim world - has no solution. If the first intifada seemed to pave the way for a two-state solution, the slow grind of the Oslo process, continuing settlement activity, the rise of Hamas, the failure of the Camp David talks and the second intifada made it recede to the point of disappearance.

In this perspective, Israel's unilateral withdrawals, first from all but a sliver of Lebanon and then from the Gaza Strip, were "rewarded" with war with Hezbollah in 2006 and with Hamas. "And so, more and more Israelis no longer believe in peace," historian Tom Segev said before polling day. "They know Israel may not survive without it, but they have lost their optimism in the many wars."

For Haaretz journalist Aluf Benn, the lesson is clear: "You need to rephrase the peace idea for Israelis after what is seen as the failure of the withdrawals from Lebanon and Gaza. People don't see a way out. The Obama message of new hope and new energy for the peace process has failed to reach Israeli voters."